I have only limited knowledge of Stock Trading, and I have recently watched Rogue Trader. It's the story of Nick Leeson, an investment trader who single-handedly bankrupted Barings Bank in the 90s.

The plot is that Nick Leeson trades futures on SIMEX. He should only trade for customers, however, he starts trading for the bank itself, pretending to do trades for an anonymous customer.

For future contracts, it's customary to pay a margin, depending on the volatility of the future traded. This margin is usually paid by the customer trading the future.

However, in the movie the margin payments are done by Barings. The whole movie plot depends on this, as it is what ultimately bankrupts Barings. I'd not give it a second thought, because it's Hollywood, and we should be used to plot holes. However, as the movie reflects an actual event, and Barings actually did collapse, I'm not sure what is going on.

Was the margin really paid by Barings? Why? Did this change in legislation after (or as a result of) Barings, and nowadays margin is paid by the customer himself?

1 Answer
1

Someone has to pay the margin; an exchange isn't going to let you buy and sell without putting up some money.

Normally, Barings would take this money from the customer and (if an actual purchase was
to be made, instead of balancing it internally with another customer's sale) pay it to
the exchange where the contract was being traded. Since Barings didn't have actually have a customer paying to have these trades made, then Barings had to pay for the margin on the futures contracts itself.